News

Cell C’s shift in strategic focus reflected in its latest results

20 October 2020

Johannesburg, Tuesday, 20 October, 2020 - Cell C released its interim results for the six months to June 2020 today. Normalised earnings 1 showed a 64% improvement to R1.8-billion, reflecting the overall impact of the new management team’s strategic focus on optimising its network as well as its emphasis on more profitable customers.

The improved earnings were delivered against the backdrop of the depressed local retail environment, a decline in consumers’ disposable income and the national lockdown which resulted in reduced trading days during the period.

Overall revenue was at R6.9-billion compared to the six months of the previous year (2019: R7.4-billion). More than 89% of its revenue comes from service revenue which was 6% lower at R6.5-billion, while hybrid and Fibre-to-Home saw an increase in sales of 16.7% and 11.1% respectively.

While revenue from the wholesale business reflected a 7% decline due to an exit from wholesale agreements which diluted margins and congested the network, the MVNO portion continued to reflect a solid growth and delivered an 18% increase to R398-million.

In line with management's strategy to rationalise its subscriber customer base while retaining profitable customers, the prepaid subscriber base declined by 34.6% over a 12-month period. This translated into only a 9.9% decrease in prepaid revenue, while gross margin grew by 11.5% and prepaid average revenue per user (ARPU) increased by 26.9%. The rationalisation process translated into an overall improvement in the customer base and a further 4.8% increase in prepaid ARPU since the end of June 2020.

Zaf Mahomed, Chief Financial Officer of Cell C says that despite the challenging circumstances which impacted on the commercial spend, the company was still able to improve its operating margin.

"The first six months of 2020 was characterised by the continuing slowdown in the economy which weakened general customer spend. We have taken active steps to reduce our focus on pure revenue and subscriber growth and have shifted to more profitable, long-term growth in the prepaid and contract segments. We were also able to generate R418-million more cash from operations compared to the previous period."

Considering the once-off recapitalisation and restructuring costs, the reported EBITDA is lower at R1.2-billion (2019: R1.4-billion). R5-billion worth of assets (network and right-of-use assets) were impaired due to the new MTN network arrangement. EBIT for the period was declared at a loss of R5.3-billion, compared to a profit of R90-million in H1 2019. Excluding once-off recapitalisation and restructure costs, EBIT for H1 2020 would have been at R162-million, an improvement of 80%.

Cell C’s CEO, Douglas Craigie Stevenson says Cell C is on track.

“Our turnaround strategy rests on four pillars namely improved operational efficiencies, restructuring our balance sheet, implementing an innovative network strategy and improving our overall liquidity. This set of results highlights that our operational focus is in line with our effort to reposition Cell C for long-term success.”

Net loss after tax was at R7.5-billion (2019: loss of R875-million), mainly as a result of once-off costs and adjustments. The net loss after tax includes impairments to the value of R5-billion.

“We remain focused on restructuring the balance sheet and optimising the business for long-term competitiveness. We have a legacy debt challenge in our balance sheet, rather than an income statement one which will be addressed with the recapitalisation,” Mahomed added.

Craigie Stevenson added that Cell C’s focus in the future will be on offering the right solutions and services and understanding the needs of its customers.

“To stay competitive, Cell C had to take a different approach against our large rivals who are all heavily invested in capital-hungry infrastructure – three operators with large scale infrastructure simply doesn’t make financial sense. Our vision is to be the biggest aggregator of wholesale capacity and customer to the infrastructure providers. We will collaborate on infrastructure but compete on products and services. The 4G roaming agreement with MTN is the first step in cost synergies and bringing tangible benefits to our customers.”

He says Cell C’s strategy is aligned with this new approach and the management team is highly focused to turn the company into a profitable, innovative player in the local telecoms industry.

“The last six months show the early signs of recovery - our earnings are up, our margins are stabilising and there is a strong single-mindedness on cutting additional costs. We are leading the way in building a reloaded Cell C that creates value for its stakeholders.”

Craigie Stevenson concluded that he expects operating margins to improve over the medium term as the business transitions to its new business model.

“Investors are looking forward to the proposed recapitalisation that will not only significantly reduce debt, but will also provide working capital which will drive revenue growth and profitability.”

ENDS

For further information contact:

Issued by: Mandy Kojetin, Atmosphere Communications; mandy@atmosphere.co.za +27 83 626 8072

On behalf of: Lethiwe Hlatshwayo, Cell C, Executive Head, Communications LHlatshwayo@cellc.co.za +27 84 777 4588